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The Secret of Family Business — Part 1

Challenges of being a ‘boss’

In the profit-driven business world, it’s easy to perceive your team, your suppliers and your marketplace as tools for your business to make more money. However, this perception leads you to a very lonely playing field.

In fact, many business owners have mentioned to us that they find it hard now to get a great level of commitment and dedication from their teams.

People in business are more likely to feel isolated in the competitive business environment when they see ‘winning’ as the ultimate goal. Some feel disillusioned by their partners and suppliers because (from their own perspectives) their partners and suppliers didn’t deliver on the promises they made.

When we focus on making money as the highest priority, it’s easy to perceive that everyone else is ‘only looking out for themselves,’ trying to take advantage of each other, trying to make more money for their own interests.

When the current bosses were employees themselves, they had other colleagues to associate with at an equal level. But once they became the employers, the journey became harder and lonelier for many of them. And on top of that, they now have so many competitors, heavy responsibilities and distractions around. No wonder the journey of a business owner can be very overwhelming.

Lack of trust—the biggest threat to business

Some of these business owners are also afraid that if they increase their prices, their customers and clients will leave them and do business with others. But by keeping prices low to retain business, they have to compromise on some aspects of their offerings. And many of them even end up becoming the least paid-per-hour team members in their companies (if they ever divided their salaries by the hours they worked).

No matter how tough it sounds, the struggles of these business owners actually start with their own perceptions and beliefs.

On the other side of the spectrum, the employees of these companies could be feeling that their companies are merely using them to make more money; they do not think that their companies care enough about them. If you look at the Gallup 2015 survey, it indicates that a staggering 87 percent of employees worldwide are not engaged at work. And their research shows that managers account for at least 70 percent of variance in employee engagement scores in the companies.[i]

The customers of these businesses tend to focus on the price, speed and quality of their products and services because that’s the only way for them to make sense of buying things from them.

It’s easy to get trapped in this dilemma as a business owner because, in reality, everyone is selfish. People usually do what they do to benefit themselves and their loved ones. Yet, we also need to be reminded that those same individuals can be moved to do things voluntarily and selflessly too—things that are far beyond their own personal gains. When trusted, inspired and appreciated, people do amazing things.

Businesses that create a greater sense of trust and a stronger sense of connection with their employees and customers can commit to their values with confidence, genuine caring and clarity. And they provide more than tangible benefits. They provide meaning.

And these businesses tend to outlive the ones that fail to form real trusting relationships with their stakeholders.

The longevity of businesses

The lifespan of businesses today are shrinking. In the 1970s, the average lifespan of large corporations in US (businesses in the S&P 500 list) was 27 years. This is steeply down from 75 years in the 1920s. And in the last decade, it further declined to a mere 15 years.

In parallel, the average tenure of a CEO has fallen sharply as well. In the 1970s, the average CEO held his position for almost 12 years. But this has almost halved to an average tenure of just six years.

It is evident in this strong correlation that we can see that shortened tenure of leadership has some kind of impact on the shortened lifespan of businesses.

Longevity of business is an important subject to anyone who is starting and driving a business aiming to create any lasting impact; how can my business thrive long-term?

Let’s find an answer to that.

It’s a little-known fact that more than 50 percent of the world’s oldest (and still operating today) businesses are Japanese businesses. There are more than 20,000 companies that are more than 100 years old in Japan. According to the Guinness Book of Records, some of these businesses are more than several hundred years old.[ii] Considering that the population of Japan is only less than 2 percent of the world’s population, this is a remarkable finding.

When you delve deeper into this, you will discover something interesting and significant: in Japan, businesses tend to continue generation after generation because they are families owned and operated. And it happens because of the high sense of commitment the members of the family have to each other and to the legacy of family they all share.

So, at first glance, it looks like forming a family business is the key to ensuring the longevity of the firm. But this is not the full picture; even family ties come to a halt when the descendants are unable to reproduce or when they decide not to inherit the family business. And even if there are people who can inherit the business, they might not be capable of running it. This is how most family businesses eventually cease to exist.

The reason why Japanese family businesses tend to last longer than family businesses in other countries is because it’s quite common for these Japanese families to even ‘adopt’ talented and dedicated adult outsiders so that the business can still continue as a family business even when there is no one in the direct family to inherit it. They maintain the structure of a family business even when there is no family member to carry on.

Think about it this way: the insights we gain from Japan’s family businesses suggest that we have a better chance to create a business that lasts by establishing a business environment/structure that resembles a family model. In this way, we harness the benefits of both models; the longevity of the family business model and the freedom of the non-family business model that elects its own leaders based on the required qualities beyond a family tie.

In the next post, we are going to explore the special qualities of the thriving Family Businesses so that we can add those qualities to our own businesses.